The Miami Herald
By Brent Kallestad
December 6, 2011
TALLAHASSEE, Fla. — Gov. Rick Scott said Tuesday he is concerned about Florida’s state-backed property insurer providing discounted coverage on new construction projects in high-risk areas.
Scott questioned Citizens Property Insurance Corp. board chairman Carlos Lacasa for its reasoning in providing that insurance, especially when the company is growing at a rate of some 30,000 policyholders a month and expanding the financial risk to all Florida property owners.
“If someone is going to build a new home, it doesn’t make sense for the existing citizens of the state to subsidize their property insurance,” Scott said after a Cabinet meeting. “If someone wants to build a home in an area that is difficult, if not impossible to get property insurance, should (Citizens) be subsidizing that?”
Lacasa said the state’s construction industry creates thousands of jobs and depends on Citizens for coverage in the costly, high-risk coastal areas where a lot of the new development takes place.
“If you can’t insure a property, you can’t even get bank financing for it,” he said.
A working majority of the board recently proposed eliminating coverage on homes valued at $2 million or more, which would remove about 7,600 expensive homes from its book of business.
There is no disagreement in most political circles about the need for Citizens to downsize and reduce its total exposure of $507 billion, which far exceeds its ability to pay claims in the aftermath of a catastrophic hurricane or series of storms.
Scott doesn’t like the way Citizens is gambling with its policyholders, providing a pay-later policy if there’s a bad storm instead of customers paying actuarially sound premiums.
“If their claim can’t be paid because Citizens doesn’t have money, that’s not insurance,” Scott said. “Let’s get this fixed.”
Any resulting shortage would leave Citizens’ customers on the hook for a 15 percent surcharge. Floridians whose business or home is covered by another company would be levied a 6 percent surcharge to make up the difference.
“We have a huge crisis if we’re hit with a severe storm,” said Lacasa, who spent his 48th birthday before the governor and Cabinet. “The risk on the individual policyholder is huge.”
And one that Scott believes is not only unnecessary, but most likely not financially viable. He wants to see Citizens reduced in size if not eventually sold to a private company.
Lacasa noted that in order to shrink the company, rates would have to be increased and coverage reduced. “You can squeeze the bubble on one end, it will pop out on the other end,” said Lacasa, adding that he concerned about the amount of commissions being earned by agents placing business with Citizens.
The number of Citizens policyholders has increased nearly 50 percent in the last two years to nearly 1.5 million. Scott asked Citizens several weeks ago to provide recommendations that it is considering for a recalcitrant Legislature that is not anxious to tackle the issue again, especially in an election year.
Lacasa said any major reductions in Citizens’ size would require legislative action and that the internal changes that could be achieved without lawmakers’ approval would have little bearing on the company’s business practices.
A former state representative, Lacasa said he’s ready to press lawmakers when they convene next month.
Citizens was created by the Legislature in 2002 to provide insurance to homeowners in high-risk areas and those who cannot find coverage in the private market. It was largely an offshoot of an underwriting association formed by the state in the aftermath of Hurricane Andrew in August 1992.
“They are going to be the expert, they need to be aggressive at making sure they get the right things done,” Scott said.
http://www.miamiherald.com/2011/12/06/2534174/scott-asks-about-not-insuring.html
